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Plan to slash Budget by 15pc puts a strain on flagship projects

Sunday February 14 2016

A labourer supervises the ongoing construction of the Standard Gauge Railway (SGR) in Voi on February 10, 2016. The SGR is 70 per cent complete for the distance to Nairobi. PHOTO | JAMES EKWAM | NATION MEDIA GROUP

In Summary

On Wednesday, President Uhuru Kenyatta told governors to prepare for hard times ahead as the State embarks on austerity measures to fund its development agenda.

Treasury says it requires about Sh2.6 trillion for these three projects — Sh2.1 trillion for the SGR up to Nairobi, Sh400 billion for the one-million-acre irrigation scheme and Sh75 billion for a one-off implementation of the laptop project.

But in its budget proposals for the 2016/2017 fiscal year, Treasury indicated that development projects would take only Sh675 billion, with total government expenditure expected to fall to Sh1.78 trillion, a 15 per cent reduction from last year’s Sh2.1 trillion budget.

The State’s decision to reduce spending in the next budget has put the Treasury and the Office of the President’s delivery unit in a tight spot over the tough choices they must make to implement the promises made during the 2013 presidential campaigns.

With just 18 months to the next General Election, several promises by the Jubilee coalition are yet to be fulfilled.

The government maintains that none of its pledges have stalled, adding that it is still on course to deliver them.

“A number of these projects have been complex to execute because they are noble causes that we were trying out for the first time. But we are 60 per cent done on all the key flagship projects,” Mr Nzioka Waita, head of the Presidential Delivery Unit, told the Sunday Nation.

“Some of the issues that have led to this delay are cartels, who feel that they must get a piece of all capital expenditure by the government — like in the laptop project — but this has been sorted out,” he added.

However, the proposed 2017/2017 budget does not appear to have factored in these pledges.

Unless the government reduces expenditure on key sectors or seeks external funding, it is increasingly likely that it will head to elections with a huge deficit of unfulfilled promises.

On Wednesday, President Uhuru Kenyatta told governors to prepare for hard times ahead as the State embarks on austerity measures to fund its development agenda.

But faced with a widening gap between revenue collection and expenditure, as well as a rush to implement flagship projects in time for elections, observers say the move by the government is a little too late.

“This is something they should have done in the first year,” said Dr Samuel Nyandemo of the University of Nairobi’s School of Economics.

“Economic growth has stagnated because of clear cut policies in investment. The net effect of this is a reduction in revenue collection, which has prevented the government from fulfilling its pledges. Instead of admitting this, they are looking for a scapegoat by antagonising devolution,” he said.

UNFULFILLED PROMISESVoted in on a pledge to transform Kenya from an analogue state to a digital one, the Jubilee coalition’s manifesto was largely based on an ambitious agenda of economic nirvana through grand projects.

Key among them was development of ICT incubation hubs in all counties, provision of free milk to school-going children, access to a fully equipped health centre within five miles of each home, and construction of five new stadiums in Kisumu, Mombasa, Nakuru, Eldoret and Garissa, plus increasing the paved road network from 11,000km to 24,000km.

The coalition also promised to construct commuter railway networks in all major towns, including a link to Nairobi’s Jomo Kenyatta International Airport, introduction of free Wifi in all major towns, increase of forest cover in all counties to 10 per cent, and establishment of a “national water harvesting policy in every village or estate, as well as a system of flat rate water charges with informal settlements receiving free services”.

It was also supposed to establish a national livestock insurance scheme, complete the Nairobi Electricity Transmission Ring project and the Mombasa-Nairobi transmission line to ensure reliable power supply for the two cities while prioritising the construction of an oil pipeline from South Sudan and a new oil refinery at the coast.

This is on top of its flagship projects — construction of a Standard Gauge Railway (SGR) from Mombasa to Malaba with a branch line to Kisumu, put a million acres under irrigation and provide free laptops to all pupils joining Standard One in 2014.

The pupils are now in Standard Four but the laptop project is still an idea, the SGR is 70 per cent complete for the distance to Nairobi and only 10,000 acres of land are under irrigation at Galana despite gobbling up about Sh10 billion of taxpayers’ money.

Mr Waita says the first batch of 600,000 pupils will get laptops by June, same as 98 hospitals which would get medical equipment from the national government; and that the SGR would have reached Nairobi by June next year.

“When this government came in, it inherited Sh140 billion of pending bills and 3,800km of road projects that were incomplete. And remember that the President is under obligation to complete all the Vision 2030 medium-term plans,” he said.

REDUCE WASTAGETreasury says it requires about Sh2.6 trillion for these three projects — Sh2.1 trillion for the SGR up to Nairobi, Sh400 billion for the one-million-acre irrigation scheme and Sh75 billion for a one-off implementation of the laptop project.

But in its budget proposals for the 2016/2017 fiscal year, Treasury indicated that development projects would take only Sh675 billion, with total government expenditure expected to fall to Sh1.78 trillion, a 15 per cent reduction from last year’s Sh2.1 trillion budget.

If it happens, it will be the first time Kenya’s budget has reduced since 2012 when it dropped to Sh1.45 trillion from Sh1.55 trillion after then finance Minister Uhuru Kenyatta was replaced by Mr Njeru Githae. Since then, the budget has been on an upward trajectory each year.

However, KRA’s inability to meet revenue targets has been a major hurdle.

Last year, “a shortfall of Sh228.1 billion in government expenditure was attributed to a Sh46.9 billion shortfall on revenue targets by KRA,” said Treasury in its budget proposals.

This week, top KRA and Kenya Ports Authority (KPA) officials were fired while the Kenya National Highways Management Authority (KeNHA) said it plans to start tolling motorists for use certain roads.

To minimise wastage of funds, Mr Kenyatta this week asked governors to cut by half all spending on travel and allowances.

“There have also been repeated accusations of waste and inappropriate budgeting and spending. Members of the county assemblies, in particular, have been accused of excessive spending; while reports of abuse of power, privilege and county resources have been a feature of our national discourse,” he said in Sagana where he has been holed up for the whole week, meeting leaders and strategising for the next elections.

This is the second time the President is asking top public officials to take such measures.

In March 2014, the President and his Deputy William Ruto agreed to slash their salaries by 20 per cent and asked Cabinet Secretaries, Principal Secretaries and heads of parastatals to take a 10 per cent pay cut.

CRUNCH TIMEIt is unclear if this move was ever effected, but economic experts say the government should instead concentrate on how to reduce its spending and debts.

“At the current total debt levels of Sh2.934 trillion, which represents 51.9 per cent of debt to GDP ratio, exceeding by 8 percentile points the ideal 45 per cent ceiling set by the Treasury, the government needs to worry about adding on more debt,” said Ernst & Young Tax partner Francis Kamau.

“One of the preferred options is to reduce wastage of public resources. The second option is to eliminate graft, and the third option is to decrease the size of government through a constitutional referendum,” said Mr Kamau.

According to him, Kenya is over-represented politically and this drains public coffers through a bloated government.

Politically, the next budget is not only the last one for the Jubilee government to execute before the end of its first term, but it will represent the make-or-break point for the regime.

Cord and Jubilee have been engaging in bare knuckle fights for the past few months over the state of the economy.

Cord principal Raila Odinga has a number of times criticised the Jubilee government for reneging on its manifesto promises.

“When we promised to build computer laboratories for our school-going children, they talked about giving the children laptops. As you can see, all these were empty promises,” he said in Eldoret last month.

The race to State House has already kicked off, with both Cord and Jubilee targeting the month-long voter registration that kicks off tomorrow to shore up numbers in their strongholds.